Tell your investors everything
Sammy is the Managing Director and Cofounder of Blossom Street Ventures. Email him directly at sammy@blossomstreetventures.com, especially founders.
If you’re not communicating with your investors regularly (at least monthly), you should be. Here’s why:
The more info you share, the fewer questions you’ll answer. I can attest to this personally. At BSV we have a lot of investors and one thing I feared was getting weekly sets of random questions from all of them, crippling my productivity. To prevent this from happening, I share a weekly update with my investors talking about our portfolio, opportunities we’re looking at, the Fund’s financials (monthly), etc. As a result, I never get lists of questions because our investors feel well informed.
They can help you. Talk about the bad as much as you talk about the good because you never know how your investors can help. Trying to find a contact at a big enterprise client? Maybe one of your investors knows the CEO. Looking for a new attorney or accountant? Your investors know someone, I promise. Need a killer VP of Sales? You get the idea.
One day you’ll need them to help you. Investors are much more inclined to help you when you’ve been transparent and forthcoming with information. By help, I’m not talking about advice, I’m talking about money. The path of a startup is almost never up and to the right. There could come a point where you need a small cash infusion to chase after a new hot marketing channel you’ve found, build a product feature, bridge to a financing, or even make payroll. Smaller amounts of this sort (sub $500k) can often come from some of your smaller investors and in some cases they may be the only option, so keeping them informed is critical.
It can prevent you from being sued. If you share bad news as well as good news, investors are a lot more inclined to believe the good news when it happens and truly bad news, like revenue falling significantly or the company shutting down, won’t be a surprise. When investors feel surprised, they tend to sue, whereas when they’re informed the whole time, they can see you’ve been working hard and will be more inclined to understand failures. This is especially an issue with inexperienced angel investors.
Amendments and votes will be much easier. In all likelihood you will need a majority or supermajority of your current investors to make amendments to the operating agreement/certificate of incorporation. This happens any time you raise money, issue more shares, do M&A, or a variety of other major strategic initiatives. Getting the majority of each class is much easier when investors have been apprised of what’s going on since day 1. When you leave investors in the dark, they may use a re-opening of your docs to play hard ball asking for better terms themselves or in a worst case, hold the company hostage in exchange for better terms.
